September 28, 2015

(Washington D.C.)— A new report released by the National Center for Policy Analysis (NCPA) examining generic drug price increases finds that drug wholesaler price manipulation and the relationship these large Fortune 50 companies have with drugstores is hurting competition and increasing costs. The report also warns policymakers to avoid undermining proven payer tools, including the use of Maximum Allowable Cost (MAC) lists.

NCPA’s report outlines several reasons for generic drug price increases within the supply chain and offers new insights into both wholesalers and pharmacies:

  • Drug Wholesalers. “The wholesale drug industry has undergone tremendous market consolidation in the past few decades. Today, three large firms control nearly 90 percent of the distribution of wholesale drugs — resulting in less price competition. Drug wholesalers have also been accused of manipulating industry price lists to boost profit margins for themselves and pharmacies.”
  • Independent Drugstores and the “Gray Market”. “Some pharmacies also function as small drug distributors that do little more than take advantage of scarcity and divert drugs in short supply to the wholesale gray market. When a drug becomes hard to procure due to raw material shortages or manufacturing bottlenecks, some of these small pharmacy distributors buy the drugs with the intention of hoarding them to resell at a substantial profit when the price has increased and the shortage worsened.

“[S]ome of these small pharmacy/distributors are likely created to take advantage of loopholes in state regulatory structures. For example, the so-called ‘Five Percent Rule’ allows pharmacies to wholesale minimal amounts of drugs under various conditions to entities other than patients. Pharmacies sometimes use this loophole to divert scarce drugs to the gray market. It also allows unscrupulous individuals or businesses to avoid registering as drug wholesalers.”

A recent report by the Philadelphia Inquirer also noted that “wholesale distributors take a cut of drug prices, so higher prices mean a larger cut.”

NCPA warns that consumers and payers are hurt by policies pushed by drugstores that undermine competition and increase costs, including the restriction of MAC lists, which are a key tool used by payers to reduce the cost of generic drugs.

“If a drug plan was forced to pay whatever cost a drugstore paid for a generic drug, the drugstore would have little reason to look for competitive vendors of generic drugs. In other words, attempts to limit the use of MAC lists inhibit a tool drug plans use to promote competition among pharmacies,” notes NCPA.